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There's a more likely third scenario, which is 3) neither hyperinflation nor deflation. The US hasn't seen serious deflation since the Great Depression, and ha

There's a more likely third scenario, which is 3) neither hyperinflation nor deflation. The US hasn't seen serious deflation since the Great Depression, and has never seen hyperinflation. Hyperinflations tend to go along with some sort of political or military disaster. A big wave of defaults is only a serious threat to the US economy if it leads to a banking crisis. That's why the global financial crisis was so much worse than the deflation of the NASDAQ bubble.

onlyrealcuzzo 7y ago
I think when most people say hyperinflation they just mean unusually high inflation. That did exist at least once in the US (around Volker's time), but it's probably safest to bet on the status quo.
ksec 7y ago
Yes. The possibility of Hyperinflation in US, EU, or even China, as much as I wanted it to happen is practically zero. Deflation isn't likely to happen either because money supply and actual value dont seems to be balanced well at the moment, not to mention money supply continues to increase. I am betting we will continue to see the current trend of ultra low growth, ( but still growth ) in the next few years before another stupid thing come along. That may be geopolitics and multiple smaller counties default triggering chain reaction.
IgniteTheSun 7y ago
I've seen the current national debt situation compared to the U.S. national debt situation following WW2 a number of times (e.g., national debt to GDP ratios), but there is a key difference between now and the past: past episodes of rapid national debt increases were limited to only a very few years and the government then moved to reduce debt. For example, most of the expenses related to WW2 occurred in under a decade and the national government immediately started taking measures to start paying it off. Instead of taking measures to reduce our national debt, the federal government currently is actually increasing it to the tune of a trillion dollars a year in an economy that's only approximately 20 trillion (GDP). People hear the word "deficit" and they think that means "national debt" when in fact the deficit is how much is being added to the national debt each year. Politicians never talk about reducing debt - only reducing the deficit. Do you think Congress or either party has the self discipline to eliminate the deficit entirely and to actually meaningfully reduce the actual debt? It will be a lot more painful if they do that during an inflationary crisis than today. (If you aren't familiar with it, look up the Misery Index and talk to someone who dealt with the inflation in the 1970s.) What's actually happening currently is that the Fed is monetizing a larger and larger part of the debt as (1) other nations are reaching the limit of how much they will put into US gov bond purchases and/or even starting to plan to scale back their purchases in future years, and (2) the deficit continues to grow. As Milton Friedman pointed out, inflation is always a monetary phenomenon. There are a number of deflationary forces at play as well, but these types of inflationary forces seem to be stronger - and hyperinflation doesn't seem as far fetched as it used to.

onlyrealcuzzo 7y ago

I think when most people say hyperinflation they just mean unusually high inflation. That did exist at least once in the US (around Volker's time), but it's probably safest to bet on the status quo.

ksec 7y ago

Yes. The possibility of Hyperinflation in US, EU, or even China, as much as I wanted it to happen is practically zero. Deflation isn't likely to happen either because money supply and actual value dont seems to be balanced well at the moment, not to mention money supply continues to increase. I am betting we will continue to see the current trend of ultra low growth, ( but still growth ) in the next few years before another stupid thing come along. That may be geopolitics and multiple smaller counties default triggering chain reaction.

IgniteTheSun 7y ago

I've seen the current national debt situation compared to the U.S. national debt situation following WW2 a number of times (e.g., national debt to GDP ratios), but there is a key difference between now and the past: past episodes of rapid national debt increases were limited to only a very few years and the government then moved to reduce debt. For example, most of the expenses related to WW2 occurred in under a decade and the national government immediately started taking measures to start paying it off. Instead of taking measures to reduce our national debt, the federal government currently is actually increasing it to the tune of a trillion dollars a year in an economy that's only approximately 20 trillion (GDP). People hear the word "deficit" and they think that means "national debt" when in fact the deficit is how much is being added to the national debt each year. Politicians never talk about reducing debt - only reducing the deficit. Do you think Congress or either party has the self discipline to eliminate the deficit entirely and to actually meaningfully reduce the actual debt? It will be a lot more painful if they do that during an inflationary crisis than today. (If you aren't familiar with it, look up the Misery Index and talk to someone who dealt with the inflation in the 1970s.) What's actually happening currently is that the Fed is monetizing a larger and larger part of the debt as (1) other nations are reaching the limit of how much they will put into US gov bond purchases and/or even starting to plan to scale back their purchases in future years, and (2) the deficit continues to grow. As Milton Friedman pointed out, inflation is always a monetary phenomenon. There are a number of deflationary forces at play as well, but these types of inflationary forces seem to be stronger - and hyperinflation doesn't seem as far fetched as it used to.